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Breakfast will be a major fast-food battlefront next year

With Wendy’s entrance into the market, McDonald’s, Burger King and others will defend their turf.
Photograph courtesy of Wendy's

Wendy’s in September announced another foray into the breakfast business, with plans to add the daypart to its restaurants nationwide in early 2020.

That announcement will give the company and its franchisees time to prepare for the addition. But it will also give competitors plenty of time to prepare their responses to Wendy’s potential incursion into their business.

That promises to make the morning an important battleground in the ongoing fast-food wars, as competitors push to gain traction in a profitable time of day for many restaurants.

“It’s one of the fastest-growing dayparts in the U.S.,” Jose Cil, CEO of Burger King parent company Restaurant Brands International, said in October, according to a transcript on the financial services site Sentieo. “It’s also one of the most profitable dayparts as well, given very healthy margins in that business.”

Wendy’s has tried several times to serve breakfast, much like primary rivals McDonald’s and Burger King, but has failed each time.

The company believes it has a better strategy this time. It is introducing the daypart nationwide, rather than through a gradual regional expansion. It is drive-thru focused—dining rooms won’t actually open until 9:30 a.m., so operators can run a restaurant with just three people.

It is also using existing brands, such as the Frosty and Baconator, and believes its social media presence will give it a leg up.

Wendy’s believes it can get as much as 8% of its sales in the morning next year, which would make it a nearly $900 million business right off the bat.

As it is, there are indications that the fast-food business has reached a certain limit in the morning. McDonald’s, long dominant at breakfast, has seen traffic decline the past two years, even as it has recovered sales more recently.

Sandwich giant Subway, meanwhile, last year told operators they no longer had to serve breakfast because the daypart had proven too weak.

Restaurant executives, for their part, have suggested that new entrants will not have much of an effect on their own business.

“Everyone wants into our space,” Dave Hoffmann, CEO of Dunkin’ owner Dunkin’ Brands, said in late October. “We always come out strong. One new competitor won’t change that.”

Lenny Comma, CEO of San Diego-based Jack in the Box, said his company wouldn’t focus all of its attention on breakfast. But it won’t ignore the daypart either.

“We want to balance our approach and not just throw everything at breakfast out of fear,” Comma said on the company’s fourth-quarter earnings call last week. “But, at the same time, we’ll likely have breakfast promotions … so that we make sure our breakfast offering remains relevant and top of mind.”

One question is discounting. Steve Easterbrook, the now-former CEO of McDonald’s, said last month that it would not be “in anyone’s huge best interest to have too much value” next year.

Easterbrook has since been fired and replaced by Chris Kempczinski.

Burger King, however, has a history of aggressive promotions to build business at certain times of day, using items like 89-cent pancakes. It could do something similar this time.

The company earlier this year said it wants to take its breakfast business from 15% of sales to closer to McDonald’s 25%. And Cil said the chain is focused intently on building that daypart.

“We continue to invest behind it both in terms of product quality innovation, beverage innovation, and we’re investing in media over time,” Cil said. “We have the people already working the daypart. We’ve already got customer or guest behaviors in place to come to Burger King. We aim to continue to expand and innovate in the area to drive more growth over time.”

As for Wendy’s, the company is committed to investing in marketing of the breakfast program for three years.

Operators might not wait that long. Franchisees can potentially raise concerns about breakfast if it isn’t generating financial returns in the first year and could opt out of the program.

“Then we are willing to entertain a discussion to mutually agree that maybe they could be opting out later on,” Wendy's Chief Financial Officer Gunther Plosch said earlier this month. “But again, they need to demonstrate on their side that they have really put their best foot forward.

“We passionately believe that we have designed a very, very compelling breakfast program that is profitable, and therefore we expect the opt-out range to be very, very low.”

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